Ger­man in­dus­try, ed­u­ca­tional sys­tem a good model for China

Eric Thun be­lieves man­u­fac­tur­ing will re­main the “heart and soul” of the Chi­nese econ­omy.

The as­so­ciate pro­fes­sor in Chi­nese busi­ness stud­ies at Ox­ford Univer­sity’s Said Busi­ness School and a renowned ex­pert on Chi­nese man­u­fac­tur­ing, was speak­ing af­ter the launch of the gov­ern­ment’s Made in China 2025 plan.

The 47-year-old Amer­i­can in­sists the new plan reaf­firms the im­por­tance of man­u­fac­tur­ing de­spite the re­cent fo­cus on moves to make the econ­omy more driven by ser­vices and con­sump­tion.

“Even if you are pro­mot­ing the de­vel­op­ment of ser­vices, man­u­fac­tur­ing is the heart of and soul of the Chi­nese econ­omy,” he says.

The 2025 plan aims to make China a world man­u­fac­tur­ing power but one fur­ther up the value chain than the one that set the coun­try on the road to be­ing the world’s sec­ond-largest econ­omy.

In­stead of be­ing known as a maker of plas­tic toys and other in­ex­pen­sive goods, the aim is to be man­u­fac­turer of more high- end tech­no­log­i­cal prod­ucts.

The fo­cus will be on 10 sec­tors, in­clud­ing aerospace, new energy ve­hi­cles, rail­ways and ro­bot­ics.

Thun, speak­ing at the new Dick­son Poon China Cen­tre build­ing at Ox­ford Univer­sity, be­lieves the plan is not some whole­sale change of strat­egy.

“I don’t think it is a dra­matic de­par­ture from the Chi­nese de­vel­op­ment path up un­til this point. It is a re­sponse to the chal­lenges that ev­ery­body rec­og­nizes are there, such as ris­ing costs and how it is be­com­ing very dif­fi­cult to com­pete on low-value-added types of ac­tiv­i­ties,” he says.

Thun, who vis­its China sev­eral times a year, re­vis­ited an auto com­po­nents maker in Zhe­jiang province, fa­mous for its en­trepreneurs who got rich on in­ex­pen­sive man­u­fac­tur­ing, in April.

“Ten years ago, you would

Eric Thun, have been talk­ing about 800 yuan ($128) to 1,000 yuan for a monthly wage, but now that would be 4,000 yuan, which is a dra­matic change in the cost base. I think that par­tic­u­lar fac­tory would be OK be­cause la­bor costs are a rel­a­tively small per­cent­age of over­all man­u­fac­tur­ing costs. It is part of some of the ecosys­tems you have in China and has the ad­van­tage of lo­gis­tics and sup­ply chains, but it is not the same for ev­ery man­u­fac­turer.”

Un­der­ly­ing China’s new man­u­fac­tur­ing strat­egy is a de­sire among pol­i­cy­mak­ers to em­u­late Ger­many’s In­dus­try 4.0 model, which it launched two years ago.

“I think the dan­ger for China is that it is not al­ways easy to im­i­tate such plans. It is not as sim­ple as cre­at­ing a gov­ern­ment pol­icy where you can sup­port cer­tain in­dus­tries.

“The Ger­man man­u­fac­tur­ing model is ac­tu­ally based on a whole ecosys­tem of com­ple­men­tary in­sti­tu­tions. You need a fi­nan­cial sys­tem that will pro­vide pa­tient long-term cap­i­tal to small and medium-sized en­ter­prises, the fa­mous Ger­man mit­tel­stadt com­pa­nies. You also need an ed­u­ca­tion sys­tem that is geared to vo­ca­tional train­ing and pro­vid­ing engi­neers to these firms.”

Thun, how­ever, be­lieves the Chi­nese gov­ern­ment is right to pri­or­i­tize more ad­vanced man­u­fac­tur­ing be­cause the old eco­nomic model is run­ning out of steam.

He be­lieves the ideas be­hind the plan orig­i­nate from the China 2030 re­port pro­duced by the World Bank and China’s Na­tional De­vel­op­ment and Re­form Com­mis­sion two years ago.

“The China 2030 re­port came out just be­fore the new lead­er­ship came to power, and I think its con­cerns about the vi­a­bil­ity of the Chi­nese model were up­per­most in their minds when they took over,” he says.

“The buzz in Bei­jing was that the eco­nomic model was run­ning out of steam and that if noth­ing was done, China could find it­self in the mid­dlein­come trap and never make the ad­vance to be a high­in­come de­vel­oped coun­try.”

Thun, who is from Syra­cuse in up­state New York, stud­ied po­lit­i­cal science at Prince­ton Univer­sity and be­came in­ter­ested in China while do­ing his doc­tor­ate at Har­vard in the late 1990s, dur­ing which he spent a year in Tai­wan learn­ing Chi­nese.

In the early part of the last decade, he was as­sis­tant pro­fes­sor in the Woodrow Wil­son School of Public and In­ter­na­tional Af­fairs and Depart­ment of Pol­i­tics, be­fore mov­ing to Ox­ford in 2005, where he is the Peter Moores As­so­ciate Pro­fes­sor in Chi­nese Busi­ness Stud­ies at Said.

He says China’s emer­gence as a ma­jor econ­omy of­fers the op­por­tu­nity to look at busi­ness in a dif­fer­ent way and is a chal­lenge to tra­di­tional Western MBA ap­proaches.

“When you look at China, you need to look at how the state in­sti­tu­tions in China shape Chi­nese firms. How the re­la­tion­ship be­tween state and busi­ness work and how Chi­nese busi­nesses com­pete in dif­fer­ent ways. These are all the unique char­ac­ter­is­tics of the Chi­nese busi­ness model.

“Es­tab­lished MBA tools are de­rived from Western de­vel­oped coun­tries and cap­i­tal­ist mar­kets. The ques­tion is how to ap­ply them to an emerg­ing mar­ket like China.”

Thun be­lieves China’s tech­no­log­i­cal break­though in man­u­fac­tur­ing may come in the automotive in­dus­try, mak­ing up for the coun­try’s fail­ure so far in this vi­tal sec­tor over the past 30 years.

Man­u­fac­tur­ing is the heart of and soul of the Chi­nese econ­omy.”

as­so­ciate pro­fes­sor in Chi­nese busi­ness stud­ies at Ox­ford Univer­sity’s Said Busi­ness School